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JTC PLC's (LON:JTC) dividend will be increasing from last year's payment of the same period to £0.0767 on 28th of June. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.
View our latest analysis for JTC
JTC's Earnings Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before this announcement, JTC was paying out 79% of earnings, but a comparatively small 24% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
JTC Is Still Building Its Track Record
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2018, the dividend has gone from £0.02 total annually to £0.112. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
JTC's Dividend Might Lack Growth
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that JTC has grown earnings per share at 13% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
We should note that JTC has issued stock equal to 11% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think JTC's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think JTC is a great stock to add to your portfolio if income is your focus.